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Schlumberger Has the Energy to Continue Piling on the Gains

NEW YORK (TheStreet) – With shares of oil services giant Schlumberger (SLB - Get Report) trading at around $109, it's become time to revisit an earlier prediction when I told you the stock was heading to $100. At the time, shares traded around $91.

Schlumberger stock is now up more than 22% on the year to date, doubling the energy sector's 11% gain. Since my buy recommendation in November, Schlumberger has rewarded shareholders with as much as 30% gains, reaching $118.76 on July 1. And there's more gains ahead.

Analysts have finally gotten on board. Of the 28 brokers who cover the company, Schlumberger has a high price target of $168 and a median target of $131, representing gains of 58% and 20%, respectively. There are currently no "sell" recommendations on the stock.

This is because Schlumberger, which competes with Halliburton (HAL) and Baker Hughes (BHI) , is the leader of the bunch by far. That said, it's time for investors to consider the entire energy sector -- a topic I've raised on more than one occasion.

To that end, it's a little surprising that Baker Hughes is trading at a higher earnings multiple than Schlumberger (P/E of 26 vs. P/E 20). For that matter, so is Halliburton, which trades at a P/E of 22. These threes companies often trade in tandem. But in this case, Schlumberger is being discounted since it outperforms both Halliburton and Baker Hughes in gross margin and operating margins.

In the case of Schlumberger, which is always looking to increase oilfield productivity in North America, the company is rapidly growing share in international markets. This is one way management has begun to differentiate itself from Halliburton and Baker Hughes.

The way I see it, Schlumberger should command a fair market value of $130 to $135 in the next 12 to 18 months. Consider that management continues to invest in research and development to uncover new drilling processes -- whether unconventional or otherwise.

The main drivers of Schlumberger's growth will come from the company's drilling and production technology, which is where a meaningful portion of the company's capital investments have gone. Management has raised expectations about the company's integration capabilities and what management calls "best-in-class operations and technology."

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